S&P 1500 Pension Funding Level Remained Unchanged for October 2014

Decreases in interest rates used to calculate corporate
pension plan liabilities offset rising equity markets, keeping funded status
constant. The collective estimated deficit of $367 billion as of October 31,
2014 is up modestly by $15 billion from the estimated deficit of $352 billion
as of September 30, 2014, and up $131 billion from the beginning of the year, according
to Mercer.

“Even though slight decreases in interest rates this year
have eliminated gains from a relatively strong year for equity markets, keeping
funded status level this year, there have been some significant events over the
past month that warrant plan sponsors to consider a change in their pension
risk strategies for 2015,” says Jim Ritchie, a principal in Mercer’s retirement
practice.

“With the announcement from the Fed that it will end its
quantitative easing program and the Society of Actuaries’ release of its new
mortality tables, plan sponsors will want to be ready to take advantage of
favorable economics that could provide significant savings in 2015,” Ritchie adds. “Should interest rates rise in 2015, the effect would be to make annuity
purchases and LDI strategies attractive in 2015. Those plan sponsors who have not executed term-vested
cashouts in 2014 can still see significant savings in 2015 before the new
mortality tables become effective for funding and lump sum determinations.”

Mercer estimates the aggregate funded status position of
plans operated by S&P 1500 companies on a monthly basis. This
includes US domestic qualified and non-qualified plans and all non-domestic
plans. The estimated aggregate value of pension plan assets of the S&P 1500
companies as of December 31, 2013, was $1.80 trillion, compared with estimated
aggregate liabilities of $2.03 trillion. Allowing for changes in financial
markets through October 31, 2014, changes to the S&P 1500 constituents, and
newly released financial disclosures, at the end of October the estimated
aggregate assets were $1.88 trillion, compared with the estimated aggregate
liabilities of $2.24 trillion.